Many business owners hoping that the Small Business Association’s emergency loan program would keep their companies afloat have been disappointed to discover that most banks are not participating in the program.

More than 1,000 loans have been granted to small businesses since the SBA’s America’s Recovery Capital program began in mid-June, but of the 8,200 FDIC-insured banks in the country, only about 400 are making ARC loans, according to CNNMoney.com.

The ARC program offers qualifying businesses SBA-insured, interest-free loans of up to $35,000 to help them pay off existing debt.

Many large national banks have been unwilling to participate because small, low-interest loans don’t generate profits and they worry about a high default rate. Even though the loans are guaranteed by the SBA, the administrative costs for collecting on defaulted loans aren’t worth it for many banks.

Only three of the SBA’s 10 most active lenders — Wells Fargo, PNC Financial and Zions Bank – have issued the loans, said CNNMoney.com.

Smaller, regional banks eager to participate in the program have found that many applicants don’t qualify for the loans.

“We’ve screened hundreds of applications from customers and non-customers alike,” Bob Polito, senior vice president of Webster Bank in Waterbury, Conn., told CNNMoney.com. “All need the help, but few qualify.”

Despite the small number of loans issued so far, the SBA says it is on track to provide 10,000 ARC loans by the time the program ends in 2010.

Some small businesses are planning for an economic upswing, and they are rethinking business models, launching new marketing campaigns, considering real estate deals, and some even hiring new staff, said the Associated Press.

These business owners say they are moving past short-term thinking about the economy. Donn Flipse, owner of Field of Flowers, floral superstores in Florida, told the AP, “Business is going to get better, so I’m going to do something to position myself to do even better than my competition.”

The real estate market around the country has been especially hard hit by the recession, putting many small companies out of business. But some survivors are looking toward an upswing in the housing market.

Kathy Braddock, co-founder of Charles Rutenberg Realty in New York City, said she’s readying for the next boom in a city where real estate is king. She told the AP the company is improving technology so it can take on more agents – preparing to go from 250 to 1,000.

Lorrie Thomas, who runs an Internet marketing training firm in California, started implementing changes to her business model early in 2008 and launched a new Web site this March.

“That’s the best part, to do it now,” Thomas told the AP. “Other companies, when the boom kicks back in, they’re going to start doing what I did a year ago.”